You wouldn't think retail real estate had any challenges based on how well publicly traded retail REITs performed as a group in 2010. The sector posted total returns of 33.41 percent in 2010, according to NAREIT — the second straight year that the sector delivered strong results.

The figure for all retail REITs made for the strongest gains since 2004, when retail REITs posted total returns of 40.23 percent.

And, unlike in recent years, the gains were more consistent between the three major retail subcategories that NAREIT tracks — shopping centers, regional malls and freestanding REITs.

In part, the sector benefited from the rise in share prices enjoyed by all public companies. But REIT indexes ultimately outperformed other broad stock market metrics. In addition, public REITs took advantage of their access to capital and raised substantial amounts in IPOs and secondary debt and stock offerings.

Strong across the board

The total return index for retail REITs stood at 584.29 at the end of 2010 and is up 169 percent since bottoming out at 216.82 in February 2009. However, the index remains 33 percent below its all-time peak of 878.58 reached in April 2007.

The retail REIT price index, meanwhile, has risen 150 percent since February 2009 from 81.14 to 202.94 and remains 44 percent below its all-time peak of 363.25 reached in February 2007. The dividend yield for retail REITs was 3.47 percent for the year.

By sub-sector, freestanding retail REITs led the pack with total returns rising 37.37 percent in 2010, followed by regional mall REITs (34.64 percent) and shopping center REITs (30.78 percent.)

Overall, in reviewing the annual results, NAREIT reported that U.S. REITs continued to significantly outperform the broader equity market in 2010. The FTSE NAREIT All Equity REITs Index delivered a total return of 27.95 percent in 2010 and the FTSE NAREIT All REITs Index gained 27.58 percent compared to 15.06 percent for the S&P 500. and 16.10 percent for the NASDAQ Composite.

REITs' 2010 returns came on top of 2009 gains of 27.99 percent for the FTSE NAREIT All Equity REITs Index and 27.45 percent for the FTSE NAREIT All REITs Index.

According to NAREIT, at year-end 2010, the equity market capitalization of the U.S REIT industry had increased to $389 billion, up 44 percent from $271 billion at the end of 2009, but still trailing that of the peak year of 2006, when equity market capitalization reached $438 billion at year-end. The retail sector accounted for $96.2 billion of that total.

All sectors of the U.S. REIT market delivered positive returns in 2010, and all but two sectors produced strong, double-digit returns. Top performing industry segments for the year were apartments, up 47.04 percent; lodging/resorts, up 42.77 percent; and commercial mortgage financing, up 41.99 percent. Industrial REITs were up 18.89 percent and office REITs were up 18.41 percent.

In addition, 2010 marked the second biggest capital raising year ever for REITs, trailing only 2006. Overall, U.S. REITs conducted 173 offerings and raised $47.45 billion. That was up from 130 offerings for $34.66 billion in 2009 and 82 offerings for $17.99 billion in 2008. In 2006, REITs conducted 204 offerings that raised $49.02 billion.

By type, REITs completed nine IPOS that raised $1.98 billion, 91 secondary offerings of common shares that raised $23.63 billion, 17 secondary offerings of preferred shares that raised $2.62 billion and 56 offerings of unsecured debt that raised $19.23 billion.

“In a commercial real estate marketplace in which many private owners have continued to find it difficult to raise capital to restructure highly leveraged balance sheets, REITs again demonstrated their cost-effective access to capital through the public markets,” NAREIT President and CEO Steven A. Wechsler said in a statement.